How to forecast Forex Part 2: fundamental analysis and basic chart types
Technical analysis and fundamental analysis are the two main methods of Forex analysis. In Part 1 of how to forecast Forex, we touched on Technical analysis. Now we look at Fundamental analysis.
This is the study of the cause of market movement.
This is a method of forecasting future price movements or where a currency should be trading based on a macro or strategic assessment of economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.
Factors could include: Supply and demand, seasonal cycles, weather and government policy, economic condition of the country that the currency represents, monetary policy, and other “fundamental” elements. It’s worth mentioning that many profitable trades are made moments prior to, or shortly after, major economic announcements.
Types of Forex Charts
The three most popular types of charts used by forex traders are:
The Line chart, the Bar chart and the Candlestick chart.
In this article we look briefly at the first Two:
The Line Chart.
A line from one closing price to the next closing price produces a simple line chart. A general picture then emerges of price movement of a currency pair over a period of time.
Here is an example of a line chart for EUR/USD:
Bar Charts
A bar chart shows opening and closing prices simultaneously, as well as the highs and lows. (Bar charts are also referred to as “OHLC” charts, because they indicate the Open, the High, the Low, and the Close for that particular currency)
Bear in mind that a bar is simply one segment of time, whether it is one day, one week, or one hour. Always be sure to understand what time frame a bar is referencing.
The lowest traded price for that time period is shown at the bottom of the vertical bar.
The highest price paid for that time period is shown at the top of the vertical bar.
The vertical bar indicates the currency pair’s trading range as a whole.
The horizontal hash on the left side of the bar is the opening price.
The horizontal hash on the right side of the bar is the closing price.
Example:
Here is an example of a bar chart for EUR/USD:
Lookout for an article to follow on the Candlestick Chart.
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